The fear trade subsided on Monday as Treasuries, the Japanese Yen and gold fell and equities rose after several U.S. officials played down the prospect of imminent conflict with North Korea over its nuclear and missile programs.
Over the past weeks threats and counter-threats from North Korean and Washington had knocked the Dow and S&P 500 from all-time highs, lopped about 20 basis points from the yield on the 10-year Treasury, driven the Yen to a four month top against the Dollar and added about 7 percent to the value of an ounce of gold.
The reversal in direction left the bulk of the month long moves in the various markets intact and the potential for renewed rhetoric remains high, but the report that the U.S. and Pyongyang have been talking via so-called 'back channel' diplomacy could do more to allay market fears than any official comments.
The Dow was ahead by 156 points at 22,015 at 12:27 pm in New York, recovering about half of its losses since its record high at 22,118 on August 7th. The broader S&P 500 index had gained 25 points to 2,466 at 12:36 pm, also roughly 50 percent of its losses from August 7th to the 10th.
The extent of the change in the remaining markets was considerably less. The yield on the benchmark 10-year Treasury had returned just under two basis points to 2.20 percent by the early afternoon. The recent highs have been 2.39 percent on July 7th and 2.34 percent on the 25th.
Japan's Yen had been the biggest recipient of trading flows over the past few weeks and the dollar's recovery in Monday's trading was minimal. From July 11th to August 11th the yen gained 4.2 percent versus the U.S. Dollar, rising from 113.94 to 109.19. As of 12:54 pm in New York the Yen had shed less than 30 of those points to 109.44.
Likewise gold has kept almost all of its 7 percent surge from $1210 on July 7th to its $1294 close on Friday. By 1 pm it had lost just $2.70 to $1291.
With the American media having moved on to coverage of the events in Charlottesville, Virginia markets can again ignore what was always a most unlikely scenario, war in the Korean peninsula.
Chief Market Strategist
WorldWideMarkets Online Trading